ANALYSISCan proximity to urban green spaces be considered a luxury? Classifying a non-tradable good with the use of hedonic pricing method
Introduction
According to the microeconomic definition, a good is a luxury when there is a disproportionate demand for it in relation to an increase in income (Mankiw and Taylor, 2006). In the case of green spaces, which are environmental goods, such a simple way of recognizing luxury may be hard to apply (Flores and Carson, 1997; Martini and Tiezzi, 2014). Still, this does not mean that we cannot describe green space proximity as luxury goods at all. Quite independent of the microeconomic definition, it is still possible to describe green space proximity as a luxury using stated preferences methods (contingent valuation or a discrete choice experiment) to support the distributional interpretation of the income elasticity of the willingness to pay (WTP) for proximity to green spaces (Fransico, 2010; Kristrom and Riera, 1996).
The research question addressed here is whether and to what extent valuation methods based on revealed preferences, in particular hedonic pricing, could be used to discuss the luxury of living close to urban green spaces. The basic “product” of a hedonic pricing model, i.e., the estimated marginal WTP (MWTP) for proximity to green spaces, cannot be used to infer the luxury of green space proximity. However, following the logic behind the microeconomic definition of a “luxury good” and the distributional interpretation of the income elasticity of the WTP, we may be interested in deriving the MWTP in different apartment price sub-segments and then relating the changes in the MWTP to the wealth of real estate buyers. This could potentially provide information about the signs of the luxury of living close to the selected urban green spaces.
The aim of this study is to assess whether it is possible to depict the signs of the luxury of living close to parks and forests (the two main categories of urban green spaces) with the use of hedonic pricing. We applied a three-step analysis to check how the MWTP for green space proximity varies among apartment price sub-segments. In the first step of the analysis, we estimated the baseline hedonic pricing model, to recognize which factors affect apartment prices in Lodz (Poland). Then, we classified each park and forest as amenities (desired) and “other green spaces” (undesired or yielding a statistically insignificant result) using the abovementioned hedonic pricing model estimated as a generalized additive model (GAM) with spatial gradient. For those parks and forests which were recognized as amenities, we estimated the MWTP using a spatial quantile regression model (SQAR). This enabled us to explore how the MWTP for the given parks and forests varies among apartment price sub-segments. We discuss whether and to what extent these results could be interpreted by the apartment buyers as a sign of the luxury of living close to urban green spaces.
The following section describes different notions of the luxury of green spaces. Section 3 briefly presents our case study city, data sources and the methods we used: a baseline hedonic pricing model, a GAM with the spatial gradient and SQAR. Section 4 reports the results of the consecutive parts of the study, while Section 5 discusses them in the context of the potential luxury of living close to urban green spaces and environmental justice. Section 6 concludes.
Section snippets
Proximity to urban green spaces as luxury good
The question of whether a given environmental good may be a luxury became a subject of interest among environmental economists who considered it both theoretically (Ebert, 2007; Flores and Carson, 1997) and empirically (Kristrom and Riera, 1996) for a wide range of examples. Nevertheless, there is no unequivocal answer as to whether environmental goods can be considered a luxury, nor is there a consensus on how (if at all) to verify how much of a luxury environmental goods are (Andreas et al.,
Case study city – Lodz (Poland)
Lodz (19°27′ E, 51°45′ N) is the third largest city in Poland with ca. 700,000 inhabitants and an area of 293 km2. The main categories of formal green spaces which occur in Lodz are parks, forests, allotment gardens and cemeteries. The former, in particular, are diversified in their size (Czembrowski and Kronenberg, 2016), biocultural value (Czembrowski et al., 2016b) and potential attractiveness for apartment buyers (Czembrowski et al., 2016a). The spatial distribution of the main formal green
Methods
We divided our analysis into three steps (Fig. 2). In the first step, we specified a baseline hedonic pricing model which allowed us to control for the impact of structural, locational and environmental attributes on apartment prices. The baseline hedonic pricing model was estimated using walking distances to the nearest park and forest, but these variables were changed in the second and third steps of our analysis.
In the second step, we modified the baseline hedonic pricing model and estimated
General results from the baseline hedonic pricing model
We estimated the baseline hedonic pricing model as a spatial autoregressive model (SAR) because we found that the residuals from the OLS model are spatially autocorrelated (p-value <0.05 in Moran's I test). The elements of the spatial weights matrix W were specified using the k-nearest neighbors algorithm with k = 15 because we achieved the lowest variance of the error term for this value. The model contains as the explanatory variables the natural logarithm of the walking distance to the
The variation of the MWTP for proximity to green spaces
We found the MWTP for the proximity to parks and forests varies among price sub-segments in the apartment market in Lodz. For parks classified as environmental amenities, the absolute value of the estimated MWTP rises with apartment prices. The variability of the estimated MWTP for proximity to parks and forests in price sub-segments may be a signal of the differences in implicit prices for proximity to selected parks and forests across the distribution of apartment prices (Rajapaksa et al.,
Concluding remarks
Hedonic pricing is a well-known method for the economic valuation of environmental goods, such as urban green spaces. However, to the best of our knowledge, the hedonic pricing method has not been yet used in the context of studying the luxury of living close to urban green spaces. Through this study, we would like to fill this gap. We proposed a three-step analysis, based on the hedonic pricing method, to check how the MWTP for proximity to selected parks and forests differs among price
Acknowledgements
This research was carried out within the ENABLE project funded through the 2015–2016 BiodivERsA COFUND call for research proposals, by the national funders: the Swedish Research Council for Environment, Agricultural Sciences, and Spatial Planning, the Swedish Environmental Protection Agency, the German Aeronautics and Space Research Centre, the National Science Centre (Poland) (grant no. 2016/22/Z/NZ8/00003), the Research Council of Norway and the Spanish Ministry of Economy and Competitiveness
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